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Blockchain unleashed

What impact could blockchain have on supply chains? In my opinion, a very big one. In principle, this encryption technology that enables data to be shared securely has the power to finally solve two major, long-standing supply chain challenges.

Right now, blockchain is used primarily for Bitcoin, which integrates digital flows of money and information via peer-to-peer personal computer networks. According to IT consultancy firm Gartner, blockchain is currently at the peak of the so-called Hype Cycle for emerging technologies. Several companies have recently announced their intentions to use this technology to integrate flows of goods and information within their supply chains. Container shipping company Maersk Line will implement this technology next year to improve the speed and efficiency of insuring cargo. Philips plans to purchase scare materials and then track them throughout the entire life cycle using blockchain. And IBM has announced a collaborative food-industry project with Unilever, Nestlé, Dole and Walmart to set up a blockchain in which product data will be added for all transactions, making it quicker and easier to see where products have come from and what has happened to them.

What strikes me is that all of these examples relate to tracing products and materials in the downstream supply chain. In an interview ten years ago, Professor Hau Lee from Stanford University drew my attention to the fact that the bullwhip effect – in which a small fluctuation in consumer demand can have a huge impact at the beginning of the chain – remains the ‘mother of all supply chain problems’. In theory, blockchain can at last integrate – and hence synchronize – the flows of goods, information and money. In the coffee supply chain, blockchain can ensure that all the relevant chain partners – including the farmer at the start of the chain – can be paid within minutes of a consumer purchasing a jar of coffee in their local supermarket. This would significantly reduce the bullwhip effect while also eliminating cash-flow problems in the chain. However, achieving this utopia will require openness, collaboration and trust from all chain partners.

Based on the evolution of other technological developments in recent decades, once it has peaked as a hype blockchain is destined to fall into a deep abyss of disillusion. But with utopia in sight blockchain could achieve a real breakthrough for supply chain management.